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Asian Lender Says Trade Wars, Debt Adding to Financial Risks

Trade conflicts, rising debt and the potential impact from rising interest rates in the U.S. will likely dampen growth in the coming year, the Asian Development Bank said Wednesday in an update of its regional economic outlook report.

The Manila, Philippines-based regional lender said Wednesday that it expects economic growth to remain at a robust 6.0 percent in 2018 but to slip to 5.8 percent next year.

It cited looming financial and trade shocks as the biggest sources of potential trouble. If the U.S. economy shows signs of overheating, interest rate hikes by the Federal Reserve could disrupt currency markets and other capital flows, leading to problems with bad loans.

Overly high housing prices also are risks for China, Hong Kong, Malaysia and South Korea, it said.

But it said the bigger threat comes from potential damage to supply chains caused by trade conflicts, especially between the U.S. and China.

In a conflict stemming from U.S. complaints Beijing steals or pressures foreign companies to hand over technology, Trump went ahead Monday with a tax hike on $200 billion of Chinese imports. Beijing retaliated by imposing penalties on $60 billion of U.S. goods.

That move will likely shave 0.5 percentage points off of China’s growth and 0.1 percentage points off of growth in the U.S., the report said.

It said further expansion would cause still more pain across the region, though while the U.S. trade deficit with China might shrink, the deficit with Asia overall would not decline so much because other countries would likely exporting more to make up the difference.

China and the United States had earlier imposed 25 percent tariffs on $50 billion of each other’s goods. Combined, the tariffs now cover nearly half the goods and services China sells America and nearly 60 percent of what the United States sells China.

“Prolonged trade conflict can damage confidence and deter investment,” the ADB report said. It said the impact would be large both regional and globally, especially if it expands to include autos and auto trade.

“Estimates of impacts do not fully capture possible disruption to production units as overseas business networks are severed and investment plans are cancelled amid a reallocation of global production,” it said. …